South Korea’s real-life debt trap By Reuters


© Reuters. Passengers carrying masks to keep away from contracting the coronavirus illness (COVID-19) stroll at Seoul railway station in Seoul, South Korea, October 19, 2021. REUTERS/Kim Hong-Ji/Recordsdata


By Cynthia Kim

SEOUL (Reuters) – Many small enterprise house owners in South Korea recognise themselves within the cash-strapped characters of the wildly standard Netflix (NASDAQ:) drama ‘Squid Recreation’, who vie desperately for an opportunity to win $38 million, exposing a debt lure that’s all too acquainted.

Nearing retirement at 58, Yu Hee-sook paid off her money owed way back, however nonetheless will get calls from assortment companies threatening to grab her financial institution accounts, because the loans bought securitised and offered to traders with out her information.

“In Korea, it is like the tip of the world when you turn out to be a credit score delinquent,” mentioned Yu, who bought by on small jobs, corresponding to writing for film magazines, in the course of the 13 years it took to repay the money owed she incurred over a film that flopped in 2002.

“All I needed was possibilities to repay debt, however banks do not allow you to generate income,” added Yu, who feels trapped in an unforgiving life-long ordeal, similar to the 456 sport present contestants of the ‘Squid Recreation’.

Whereas foreigners could affiliate South Korea with the boyband BTS and modern Samsung (KS:) smartphones, the drama factors to a darkish flipside of rising private borrowing, the best suicide fee amongst superior nations, and the rarity of getting freed from debt.

Report family borrowing is fuelling non-public funding and housing development, however unforgiving social mores about debt typically blur the road between private and enterprise loans, burdening those that run small companies.

Private bankruptcies soared to a five-year excessive of fifty,379 final yr, courtroom filings present.

The proportion of these falling behind on a couple of kind of non-public debt fee has risen steadily to achieve 55.47% by June from 48% in 2017, figures from the Korea Credit score Data Companies present.

“If Donald Trump was a Korean, he most likely could not have turn out to be the president, having been bankrupted many instances,” mentioned a lawyer in Seoul, who specialises in private chapter.

“In the US, company debt is extra separated from private debt.”

An insufficient social security internet for small entrepreneurs and the shortage of a rehabilitation programme for failures spell dangers that would drive some South Koreans determined, and banks typically ignore a five-year restrict to destroy insolvency information.

“Resulting from conventional practices within the banking business, enterprise house owners in South Korea face excessive probability of taking the debt burden from the enterprise they run,” mentioned chapter choose Ahn Byung-wook.

Banks typically demand that enterprise house owners stand as joint surety for the agency’s borrowing, a observe the federal government banned for public monetary establishments in 2018, though three house owners informed Reuters some suppliers persist.

Candidates for enterprise loans who’ve poor credit score rankings or a historical past of default want ensures from state-run monetary establishments in South Korea.

“Culturally, failed entrepreneurs are socially stigmatised, so beginning over is difficult, as individuals do not belief them,” added Ahn, who has spent 4 years on the Seoul Chapter Courtroom.

“On high of that, those that file private chapter face an extended listing of restrictions on employment.”

The numbers of South Korea’s self-employed rank among the many world’s highest, forming 1 / 4 of the job market, making it susceptible to downturns. A central financial institution research in 2017 confirmed that simply 38% of such companies survive three years.

Nonetheless, as financial prospects dwindle, with South Koreans chasing fewer good jobs amid surging house costs, many are betting that hypothesis is the one path to wealth, and have taken on extra debt than ever to purchase shares and different belongings.

Family borrowing is roughly equal to GDP at a document 1,806 trillion gained ($1.54 trillion) within the June quarter.

“The federal government encourages startups however they do not care for the failed companies,” mentioned Ryu Kwang-han, a 40-year previous entrepreneur who exited the debtor rehabilitation programme in 2019 however nonetheless struggles to get loans.

“How is that this completely different from ‘Squid Recreation’ if there is no second possibilities?”

The worldwide sensation has been watched by 142 million households since its Sept. 17 debut, the world’s largest streaming service has mentioned, serving to Netflix so as to add 4.38 million subscribers.

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